France Has Never Liked Its Euro Too Strong

The flag of the European Union flies alongside the French national flag outside the Banque De France, France’s central bank, in Paris.

Bloomberg News

When it comes to complaining that the euro is riding too high, French politicians have a bit of history.

Former President Nicholas Sarkozy was at it back in 2011 when he lamented the effects a too-strong single currency might have on mighty Airbus. Europe’s showpiece aviation heavyweight is of course locked in perpetual export battle with Boeing and the euro’s performance against the dollar is critical to its chances of securing vital orders.

Mr. Sarkozy’s successor, Francois Hollande, sang on a similar theme earlier this year. Playing just a little to a French gallery always happy to see ‘Anglo Saxon’ capitalism put in its place, he actually argued that the poor little euro shouldn’t be left to fluctuate at the whim of all those ghastly speculators in the world’s markets.

And sure enough, here comes French Finance Minister Arnaud Montebourg. On Tuesday he urged the European Central Bank to curb the single currency’s strength. In an interview with French daily newspaper Le Parisien, Mr. Montebourg said the central bank should do what every government does: “Adjust the rate in our interest.”

He also said the euro is a little “too German.”

Euro strength is a thorny issue for the ECB. On the one hand its official position is that the market will set the euro’s rate, or, at least, the ECB won’t. Asked repeatedly at his last post-policy press conference on Oct. 2 whether the euro was too strong, President Mario Draghi responded, as he always does, that the exchange rate was not a policy target.

However, on the other, the EUR/USD pair is now well above its long term average, which is about $1.25 or so, based on monthly closes between now and January 2002 when the euro became a real ‘notes and coins’ currency. And, as the Fed’s ongoing asset purchases curb dollar strength, so the effects of loose monetary policy in the euro zone are diluted by a comparatively stronger currency.

Still, the ECB probably isn’t ready to get as vocal as the French on the subject of euro strength just yet. But a push on towards the $1.40 handle might make life extremely interesting for it given the weakness of the euro zone’s nascent recovery.